Due to the low volume of stock futures in the US, where the markets are closed, and the effect of the decline in Japanese shares, the rally in the global stock market is interrupted. In the US markets, which will be closed for Independence Day, the Fed’s commitment to continue tightening in the coming months is starting to lead to an inverted yield curve picture of the type last seen in the 1980s.
In Asia, the Nikkei 225 index fell 0.9 percent, while Hang Seng rose 0.55 percent and Shanghai Composite rose 0.1 percent.
Developed country currencies are stable against the dollar. The Dollar Index is flat at 1,232. The Australian dollar fell 0.3 percent after the Reserve Bank of Australia announced that it kept the interest rate at 4.1 percent and that further tightening may be required.
The offshore yuan, which was supported by the fixation of the Central Bank in China, carried its rise by 0.2 percent against the dollar for the third day.
The yield curve returns to the 80s.
The Fed’s commitment to continue tightening in the coming months is beginning to lead to an inverse yield curve picture of the type last seen in the 1980s.
The difference between the US two-year and 10-year bond yields increased to 110.8 basis points with the increase in the two-year yields. It was last seen at 110.9 basis points in March, marking the highest difference since the 1980s. The yield on the two-year bond, which is sensitive to the Fed rate, rose to 4.94% on Monday.
The yield spread fell to 108.5 basis points after the ISM manufacturing index fell to its lowest level in three years, below expectations. Stating that the slowdown in inflation and employment data did not satisfy Fed members and the markets, RJ O’Brien Managing Director John Brady stated that short-term risks, where the interest rate hike outweighs, should be priced, and this means that the US bond yield gap will widen more in favor of the short term.
Bank of America strategists also stated that the 2-10-year yield gap is suitable for further opening. The widening of this gap is seen by many economists as a recession signal. US markets will be closed today for Independence Day, July 4th.